107k views
3 votes
A fruit company has 20% returns in periods of normal rainfall and –3% returns in droughts. The probability of normal rainfall is 60% and droughts 40%. What would the fruit company’s expected returns be?

User Nihal
by
7.8k points

1 Answer

7 votes

Answer:

10.8%

Step-by-step explanation:

The computation of the expected returns is shown below:

= Return in periods of normal rainfall × probability of normal rainfall + return in droughts × probability of droughts

= 20% × 60% + -3% × 40%

= 12% - 1.2%

= 10.8%

Basically we multiplied the returns with its probabilities so that the approximate expected rate of return could come.

User Peter Hansen
by
8.2k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.